Reforming Alabama's Medicaid Drug Program

September 12, 2013

As state Medicaid programs across the country place more enrollees in managed care, stakeholders and pharmacy interests have called on state legislators to impose unnecessary regulations on drug plans and the firms that manage drug benefits, says Devon Herrick, a senior fellow with the National Center for Policy Analysis.

They justify these regulations by calling for transparency, claiming that disclosure of negotiated drug prices is necessary to prevent drug plan managers from excessive drug price mark-ups at the expense of patients and health plans.

Prices for drugs often differ unnecessarily from one pharmacy to the next.

State Medicaid programs arbitrarily pay much higher dispensing fees than would occur in a competitive market.

State Medicaid fee-for-service drug programs use low-cost, generic drugs less than efficiently-managed programs.

Moreover, the number of redundant and unnecessary prescriptions per Medicaid enrollee is often higher for state-managed fee-based drug programs.

One recent legislative proposal would have handed over control of Alabama's Medicaid drug program to an organization that represents pharmacy interests. Placing control over Alabama's Medicaid drug program in the hands of the pharmacies that provide Medicaid enrollees' drugs would not save the state money. Rather, competition among firms that administer benefits, along with aggressive price negotiation with pharmacies will more successfully lower costs.

It is in Alabama taxpayers' interest to provide drugs to Medicaid enrollees at the lowest possible cost to the state. The governor's commission -- which is due to issue its report in December 2013 -- will likely find that employing the services of pharmacy benefit managers will lower costs. However, the commission will undoubtedly come under political pressure to protect local providers from the type of competition that could save Alabama taxpayers money.